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Tax Reduction Effect of VAT for Business Tax across the Board: An Analysis Based on Input-Output Table(No.73, 2016)


By Li Chengjian, Department of Macroeconomic Research, DRC

Research report No.73, 2016 (Total 4956) 2016-5-30

Abstract: Since May 1, 2016, the pilot program of value-added tax (VAT) replacing business tax has been advanced across the board. This round of tax reform has witnessed quite different effects in different industries. The tax burden of pilot industries is affected by VAT rate and deductible input tax, but other industries are benefited from the increase of deductible input tax. The input-output table illustrates the performance of each industry through utilizing intermediate inputs from other industries. The table could enable us to clearly measure the specific influence of such tax reform on each industry. Through measurement, the tax burden of those industries that paid VAT before the reform has reduced by about 10% comprehensively and the tax burden of transportation, storage, postal service, information transmission, computer service and software industries has dropped by 25%, but the tax burden in real estate industry has increased by nearly 6%. Theoretically speaking, the tax burden will reduce by over 60% in the industries of construction, finance, wholesale and retail trade, hotel and catering, as well as in other service industries. In general, this round of tax reform is hopeful to realize a tax reduction of over 500 billion yuan. This report also sets forth some policy options for further improving the program of replacing business tax with VAT.

Key words: VAT for business tax, tax reduction effect, reform across the board, input-output table